The Australian dollar closed slightly lower on Friday as a ratings downgrade of Greece had investors selling higher-yielding assets and buying the US currency.
At 1700 AEDT, the Australian dollar was trading at $US0.8885/89, down from Thursday's close of $US0.8888/94.
During the domestic session, the local unit traded between a two-month low of $US0.8810 and $US0.8902.
A senior currency analyst with financial markets research group Forecast, Lee Wai Tuck, said the ratings downgrade of Greece and investor readjustment of US dollar holdings had weakened the Australian currency.
Ratings agency Standard and Poor's lowered its credit rating of Greece one notch to triple B-plus and warned of further downgrades.
"The US dollar is firmer as investors buy back the dollar shorts, also on concerns on the eurozone and some repatriation of US funds to the States", Mr Lee said from Singapore.
Comments earlier in the week from Reserve Bank of Australia (RBA) deputy governor Ric Battellino had investors lower their expectations of the pace for future rate hikes, Mr Lee said.
In a speech on Wednesday, Mr Battellino said the cost of new funds raised by banks had risen since the start of the global financial crisis by more than the RBA's cash rate.
"The current level of deposit rates, housing loan rates and business loan rates would have been consistent before the crisis with a cash rate of at least 4.75 per cent," Mr Battellino said.
The RBA lifted the cash rate by 25 basis points to 3.75 per cent on December 1.
Debt futures markets are pricing a 40 per cent chance of the RBA hiking the cash rate by 25 basis points to 4.0 per cent on February 1, when the central bank's board next meets.
"This has changed the perception that the RBA will continue its pace of rate hikes," Mr Lee said.
Mr Lee forecast the Australian dollar to remain under pressure during Friday's offshore session and trade between $US0.8750 and $US0.8920.
At 1600 AEDT, the Reserve Bank of Australia's trade weighted index (TWI) was at 68.8 points, down from Thursday's close of 69.0.
